2020 | Mid-Year Houston Healthcare Market Report

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COVID-19 applies pressure to otherwise healthy Houston healthcare real estate market

 

Healthcare Trends

Commentary by  Coy Davidson | Senior Vice President

Houston’s Healthcare real estate market expected to have another solid year of growth as we began the year. Unfortunately, a global pandemic arrived in late February, placing financial stress on Houston’s healthcare systems.

Houston’s largest healthcare systems and smaller independent healthcare providers as well have had their bottom line impacted by COVID-19 with profitable elective surgeries placed on hold, and unforeseen costs associated with treating the coronavirus. As a result, with pressure to reduce expenses and a stagnant local economy, healthcare systems are tapping the brakes on previously planned expansions and exploring ways to streamline how they deliver care to consumers.

Some pre-pandemic planned construction projects and lease transactions are moving forward. The more ambitious capital projects have been put on hold as health systems confront the realities of shoring up their operating margins. As a result, the leasing activity in the medical office and retail market has slowed to a trickle as healthcare providers have shown apprehension in making long-term lease commitments until the fallout from COVID-19 subsides. Renewal of existing leases at current locations is the norm versus establishing new locations in Houston’s rapidly growing suburbs to expand market share, which was prevalent pre-pandemic.

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New MOB Construction

Currently, there are thirteen (13) medical office buildings under construction in the Houston Metro totaling 706,286 square feet. Some of the more notable projects include:

  • Houston Methodist is currently under construction with a 150,000 square foot MOB at its Clear Lake Hospital Campus in Nassau Bay.
  • Testa Rossa Properties is presently under construction with the 160,000 square foot Museo Plaza Medical Office Building at 5115 Fannin Street.
  • Jacob White Construction is under construction with the 53,000 square foot Bissonnet Medical Plaza at 4660 Bissonnet Street.
  • California-based Healthpeak Properties Inc. is developing the five-story, 116,500 square foot medical office building at 7500 Fannin Street. 

Investment Sales

MOB transaction volume has slowed nationally, particularly in Q2 primarily as a result of the disruption in the capital markets due to COVID-19, and this trend applies to the Houston Metro as well. There were nine (9) MOB investment transactions in the first half of 2020 in the Houston metro, with two sales recorded in the second quarter. Some of the more notable MOB investment transactions in the first half of 2020 include:

  • Harrison Street Realty Capital’s acquisition of the 208,000 square foot M.D. Anderson Cancer Center in The Woodlands.
  • INVESCO’s acquisition of the 126,000 square foot Physician Specialty Center at 1900 North Loop West.
  • MB Real Estate’s acquisition of the 99,768 square foot Foundation Medical Tower in Bellaire.
  • Altera Development Company acquired the 63,848 square foot Kimberly Lane Medical. Center in West Houston.

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Leasing Activity and Trends

Healthcare and MOB leasing activity slowed in March as stay-at-home orders from employers and local government officials as a result of the pandemic stymied leasing activity. However, recent sentiment from healthcare leasing agents indicates that leasing activity has begun to accelerate as we enter the third quarter. Some notable lease transactions in the Houston Metro in the first half of 2020 include.

  • Harris Health System leased 305,000 square feet at 4800 Fournace Place in Bellaire, consolidating all of the systems’ nonclinical administrative functions into one location.
  • Houston Methodist Hospital leased 7,711 square feet at 505 S. Friendswood Drive in Friendswood and an additional 6,920 square feet at 9090 Katy Freeway in West Houston, expanding their presence in the Spring Valley location to 26,147 square feet.
  • Houston Women Care Associates renewed its lease of 22,984 square feet at 7400 Fannin Street in the Texas Medical Center.
  • Texas Eye Institute renewed its lease of 16,001 square feet at 7710 Beechnut in Southwest Houston.

The retailization of Healthcare is not a new trend as the shift to outpatient and off-campus locations have prompted providers to increasingly look to repurpose space in suburban retail centers providing more convenient locations for consumers. COVID-19 has had a devastating effect on retailers, which will likely create historically elevated vacancies in well-located shopping centers and free-standing facilities in both desirable urban and suburban locations, providing new occupancy opportunities for healthcare providers.

Life Sciences Sector

A flurry of planned investment and construction activity in the Life Sciences sector in The Texas Medical Center, the largest in the world is poised to elevate Houston in the same strata as some of the other major Life Sciences Hubs in the United States.

Construction on the TMC3 project is set to begin late-2020. Plans for the project include 250,000 square feet of core labs and amenities, including 138,000 square feet of commercial and retail space and 112,000 square feet of shared research facilities.

The Texas A&M system recently announced its plans to build the five-acre, $540 million Texas A&M Innovation Plaza, which will be located at the intersection of Holcombe and Main. The development includes a renovated 18-story office building that was acquired by Texas A&M for $145 million in 2017. Medistar Corp. will break ground this year on Horizon Tower, a 30-story, 485,000-SF life sciences building. The Horizon Tower, 6929 Main Street, will be part of the Texas A&M Innovation Plaza

Hines and 2ML Real Estate Interests, the Levit family of Grocers Supply Co., in June unveiled plans for a 52-acre mixed-use project at the intersection of Holcombe and Highway 288 that will include life sciences lab and research facilities.

Texas Medical Center

The Texas Medical Center (TMC) – the world’s largest medical center – represents one of Houston’s major economic drivers and core industries with an estimated regional annual economic impact of $25 billion. TMC is also one of Houston’s largest employers with 106,000 employees, including physicians, scientists, researchers and other advanced degree professionals in the life sciences. The internationally-renowned 1,345-acre TMC is the world’s largest medical complex of member institutions, including leading medical, academic and research institutions, all of which are non-profit and dedicated to the highest standards of research, education and patient preventive care. Over 50,000 students, including more than 20,000 international students, are affiliated with TMC, including college and health profession graduate programs. More than 10 million patients visit TMC each year, including approximately 16,000 international patient visits.

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Overall, the complex covers over 18 miles of public and private streets and roadways, with 50M SF of existing patient, education and research space. TMC has continued to grow and expand over the past several decades with the majority of growth occurring in the past ten years. The Center is located in the 110-acre University of Texas Research Park, a joint effort between the University of Texas Health Science Center, M.D. Anderson and General Electric Healthcare. TMC spends billions of dollars on research and charity care annually.

Texas Medical Center

> World’s Largest Medical Complex (1,345 Acres & 50M Developed SF)
> 8th Largest Business District in the U.S.
> 106,000 Employees
> 10M Patients Annually
> 9,200 Patient Beds
> 180,000+ Annual Surgeries
> 13,600+ Annual Heart Surgeries

Houston MSA Health Care

> 128 Hospitals
> 9,200 Patient Beds
> 16,070 Licensed Physicians
> 336,600 Health Care & Social Assistance jobs
> 2.3% Annual Employment Growth between 2018-2019

 

Houston Healthcare Industry
In The News

US News & World Report ranks Houston hospitals among top in Texas,
nationwide - July 2020


Houston Methodist Hospital — No. 1 in Houston, No. 1 in Texas, No. 20 nationwide
Baylor St. Luke’s Medical Center — No. 2 in Houston, No. 3 in Texas
Memorial Hermann - Texas Medical Center — No. 3 in Houston, No. 5 in Texas
Houston Methodist Sugar Land Hospital — No. 4 in Houston, No. 6 in Texas (tie)
Memorial Hermann Greater Heights Hospital — No. 5 in Houston, No. 9 in Texas
Memorial Hermann Memorial City Medical Center — No. 6 in Houston, No. 10 in Texas

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Mid-Year 2020 Houston Medical Office Highlights

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2020 | Mid-Year Houston Healthcare Market Report

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Lisa Bridges

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Lisa joined Colliers in 2010 as Director of Market Research bringing 26 years of commercial real estate experience to the firm. Lisa initiates proactive market research projects to further the business goals of the company. She writes and prepares 29 market reports annually which include quarterly reports on Houston’s retail, office, industrial and healthcare properties.  Further, she prepares statistical ownership reports for various clients as well as an annual Houston Economic Overview. Lisa also creates PowerPoint market presentations, trade journal articles, and other marketing materials in support of the company's business endeavors. She works with senior management in planning the company's marketing strategy and public relations support for local and national conferences, luncheon meetings, recruitment programs, and special events.  Lisa works closely with the company's brokers to develop effective custom market research material specific to both existing and potential clients.

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Coy Davidson

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Coy Davidson has more than 30 years of experience in commercial real estate specializing in corporate real estate services, tenant representation, office leasing and investment sales.  Mr. Davidson joined Colliers International in June 2000 as Vice President in the Office Services Group.  Prior to joining Colliers, Mr. Davidson served eleven years with two local commercial real estate brokerage firms.

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